Irish Economy 2013: The Bord Gáis Energy Index
fell 3% in September despite rising wholesale gas, coal and electricity prices.
The drop in the Index was driven by a 7% fall in Brent Crude Oil prices due to
easing geopolitical tensions in Syria and Iran. The Index stood at 143 in
September and recorded its first month-on-month drop since June 2013.
Bord Gáis Energy said there was no one dominant
influencing factor on wholesale energy prices during September as the markets
reacted to a variety of events. After August recorded the highest monthly
average gas price for a summer month since the 1990s, natural gas wholesale
prices increased by a further 4% in September. This was due to supply
constraints from planned maintenance and a bout of cold weather which combined
to push wholesale Day-ahead prices higher. Unusually, this resulted in wholesale
Day-ahead gas prices trading at levels similar to those seen during the
traditionally high winter demand months. Rising wholesale gas prices were a key
reason for the 5% rise in Irish wholesale electricity prices month-on-month. In
addition, European coal prices increased (+7%) as traders factored in rising
freight costs and concerns rose about supply constraints in the months ahead
amid rising seasonal demand.
John Heffernan, power trader at Bord Gáis Energy
said: “The fall in Brent crude oil prices was the key factor driving the 3% drop
in the Index month-on-month which superseded rising wholesale gas, coal and
electricity prices. The ongoing rise in wholesale UK Day-ahead gas prices was of
particular note. The prolonged gas demand in the winter of 12/13 influenced
prices throughout the summer months as market participants replenished depleted
stock levels amid heavy summer maintenance and reduced supplies. This resulted
in record summer trading levels for wholesale gas which will influence prices in
the months ahead.”
Oil (-7%): Month-on-month the front month Brent crude price fell 7% in
euro terms as tensions in Syria and Iran eased following months of uncertainty.
Actual oil supply disruptions equivalent to 2.7 million barrels a day were taken
out of the world market in August and this resulted in the front month Brent
crude oil price trading above US$116 a barrel. The restarting of Libya’s oil
industry after strikes and protest was particularly relevant and supply
constraints diminished over the month. This also contributed to the reduction in
Brent crude oil prices.
Oil prices increased slightly due to the US Federal Reserve's unexpected
decision to delay tapering its monthly bond purchases. However, this was
counter-balanced at the end of the month by the prospect of a US government
shutdown, a crisis for Italy's government and concerns about the US’s debt
Natural Gas (+4%): Despite the average Day-ahead gas price for August
being the strongest monthly average price for a summer month since the market
was established in the late 1990s according to Platts, natural gas prices were
4% higher month-on-month for September. Unusually, over the summer months,
wholesale gas prices were in line with levels seen last December and January
which is due to unprecedented demand for gas storage injections following the
complete depletion of stocks by the end of March 2013. The greater need for gas
storage injections over the summer months coincided with very low Qatari LNG
deliveries to the UK. This increased the UK's dependence on Norwegian and
Russian gas supplies and in this regard, Norway’s biggest gas field has had its
capacity reduced until next September.
Coal (+7%): In euro terms the ICE Rotterdam Monthly Coal Futures contract
was 7% higher month-on-month. Throughout the month there was an upward momentum
to prices despite a number of bearish factors such as: healthy stocks in
Amsterdam-Rotterdam-Antwerp; the ending of a 53-day strike at a key Colombian
coal mine and port operations; and the successful and unexpected aversion of
another strike at the rail company that operates the line connecting Colombian
thermal coal mines with export terminals. Higher prices were attributed to
rising freight costs and heightened trader anxiety caused by the loss of 3.4
million m/t of coal due to the 53-day Colombian strike.
Electricity (+5%): In September the monthly average Irish wholesale
electricity price rose 5% month-on-month with the combination of rising
wholesale gas and carbon prices applying upward pressure. As the Irish wholesale
electricity price is highly correlated to the Day-ahead price of wholesale gas
in the UK, the 4% rise recorded in the September gas price applied upward
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